The Kerobo Division of BASE Industries manufactures and sells two versions of patio chairs-plastic and fiberglass. The division markets chairs to retail and catalog outlets. Generally, a sale includes both types of chairs.
The two chairs are produced on different assembly lines located in adjoining buildings. Division management and sales staff occupy a third building on the property. Control reports separate sales and production activities for planning and control purposes. The operating results for the first quarter as compared to budget are as follows:

The budget for the current year was based on the assumption that Kerobo would maintain its present market share of the estimated total patio chair market. It appears that industry volume is about 10 percent higher than forecast. A status report was sent to BASE headquarters at the end of the second month indicating that the division operating income would be about 45 percent below budget.
Manufacturing activity for the first quarter resulted in 55,000 plastic and 22,500 fiberglass chairs being produced. The costs incurred were:

\section*{Required:}
1. Explain Kerobo's higher than expected contribution margin by using variance analysis.
2. Can part of the contribution margin variance be attributed to Kerobo's change in market share? Explain.
3. Analyze the manufacturing cost variances in as much detail as possible.
4. Based on your analysis in Parts (1), (2), and (3):
(a) Identify the major causes of Kerobo's unfavorable profit performance.
(b) Discuss steps Kerobo's management could have undertaken to prevent the profit decline.

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Actual Results Budget Results Plastic Fiberglass Plastic Fiberglass Sales in units.. 60,000 20,000 50,000 25,000 Sales revenue.. $630,000 $300,000 $500,000 $375,000 Less variable costs: Manufacturing (standard). 480,000 200,000 400,000 250,000 Selling expenses. Contribution margin... 37,800 $112,200 18,000 30,000 22,500 $ 82,000 $ 70,000 $102,500 Other expenses: Variable production variances.. Fixed manufacturing expenses. Fixed selling and general expenses Corporate office allocation.... $ 48,600 49,200 38,500 18,500 $ 0 48,000 36,000 17,500